The Senate Banking Committee is gearing up to discuss a long-awaited legislation aimed at regulating the cryptocurrency sector. However, momentum stalled after Coinbase CEO Brian Armstrong expressed his disapproval in a recent post on X.
Armstrong stated, “It’s better to have no bill than a bad bill,” and he detailed some of the blockchain industry’s concerns, including ongoing conflicts with banks over incentives for holding stablecoins. He added, “I hope everyone gets a better draft.”
This proposed bill aims to address various market structure issues, a key concern for the cryptocurrency community, particularly regarding oversight among federal agencies. It would deal with complex subjects that have resulted in significant legal disputes in the past, specifically around the classification and regulation of different cryptocurrencies.
After financially supporting the election of candidates favorable to blockchain, the cryptocurrency industry celebrated a win this summer with the passing of the Genius Act, which established a regulatory framework for stablecoins. Yet, establishing a robust market structure has been more complicated, especially with banking lobbyists resisting parts of the Genius Act that would enable companies to offer interest on stablecoin holdings, akin to traditional savings accounts.
Since the House introduced the market structure bill, named the Transparency Act, back in July, Senate deliberations have been delayed. However, the Senate Banking Committee is now set to review amendments regarding the pricing process, with discussions surrounding yield issues and potential ethics rules related to the Trump administration bringing further complexity.
“There’s a genuine risk this could derail in committee,” noted one crypto lobbyist who wished to remain anonymous. “People here are really enthusiastic.”
Uncertainty Ahead
For many in the crypto space, the success of this summer’s Genius Act focusing on stablecoins felt like just the beginning, leading to an expectation for the broader market structure bill to provide real legitimacy to the industry. However, there’s a concern that this Senate bill could end up being worse than having no legislation at all.
The key sticking point as of Thursday appears to be the debate over yields on stablecoin holdings. Banking lobbyists argue that the Genius Act creates a loophole that would prevent stablecoin issuers from offering yields to users, while still allowing rewards from third parties. This has significant implications for companies like Coinbase, which reported stablecoin-related revenue of $355 million in the third quarter, derived from users holding the USDC stablecoin. Bank lobbyists warn that this could undermine the U.S. financial system by diverting funds from bank deposits.
A bipartisan group of senators has put forth a compromise version of the Clarity Act that would permit crypto firms to offer yields based on stablecoin transactions and other activities similar to credit cards. Yet, it’s unclear whether Coinbase will support this compromise, and Armstrong’s recent comments hinted at a more stringent stance.
Not everyone in the industry shares Armstrong’s perspective. Arjun Sethi, co-CEO of Kraken, expressed his support for the bill on X late Wednesday. “Even if we walk away now, we can’t realistically maintain the status quo,” Sethi noted. “It would just lead to more uncertainty while the rest of the world progresses.”
Ron Hammond, head of policy at Wintermute, offered his take on the negotiations: “It’s still a work in progress. But, it’s crypto, so last-minute drama is always a possibility.”
Another contentious point raised by Democrats involves language designed to prevent politicians, including the president, from profiting from holding or earning interest on cryptocurrencies. This matter has gained attention due to the Trump family’s connections to the crypto industry. Nevertheless, Republicans, including Senate Banking Committee Chairman Tim Scott, have pushed back against this idea, asserting that ethics rules shouldn’t be intertwined with clear legislation.
Meanwhile, letters from various nonprofit watchdog groups have raised concerns about the bill’s failure to address potential conflicts of interest within the government.
Should Democrats like Rep. Ruben Gallego, who termed the ethics clause as a “red line,” pull their support, the bill may struggle to pass in a committee that requires a simple majority—but the Republicans hold an advantage.
Lobbyists, choosing to remain anonymous, expressed frustration over the bill’s left-leaning adjustments made in the hopes of achieving bipartisan backing, including new regulations surrounding the listing process for decentralized finance and crypto tokens, along with increased oversight by the Securities and Exchange Commission. “They’ve lost their North Star,” one lobbyist remarked.
